Why corporate 'knowing and showing' matters

Fishermen of Muara Angke participate in a theatrical Rally in man-made islet, known as Islet G, in North Jakarta, Sunday, April 17, 2016. The Fishermen symbolically seal the islet to celebrate the decision of the government and the House of Representatives which stopped the Jakarta Bay reclamation project temporarily. (The Jakarta Post/Seto Wardhana)

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The basic tenet of creating an institution called a corporation is to bring more benefit to society at large. Corporations can generate economic wealth on a much larger scale than individual businesses.

The government provides incentives for corporations as a means to increase production, which in the end may help the government in distributing wealth.

Unfortunately, corporate operations have also been accused of being the main cause of environmental degradation, triggering social conflicts and/or human rights violations. For instance, a global food chain company could be accused of fueling deforestation by using paper packaging made from Indonesian rainforest timber.

Years ago, green activists, couscientious consumers and human rights activists relied on “naming and shaming” campaigns to make companies respond to them. Negative publicity and boycotts of the companies’ products are some examples. Such campaigns assume that reputation is the most important element of companies’ businesses.

Unfortunately, there are a number of situations that could make the name-and-shame approach struggle to achieve its objectives. First, the complex structure of corporations. The layers of corporate groups and the web of subsidiaries across borders make it difficult to trace which company should be held responsible for alleged harm. Moreover, with their capital power, corporations can easily transfer operations to other countries, leaving the harm unaddressed.

Second, corporations hide behind national laws and local government protection. Many companies take advantage of the absence of related laws, legal uncertainty and weak law enforcement in the countries where they operate.

Third, to avoid being targeted by negative publicity, companies create voluntary standards that contain policies to respect social, environmental and human rights issues. Many of these standards are lip service, and many lack a public verification mechanism.

Since the birth of the UN Guiding Principles on Business and Human Rights in 2011, there has been a fundamental change in expectations of corporations’ behavior towards social, environment and human rights issues. These guidelines introduce a new approach that replaces the naming and shaming campaign. It endorses new rules of the game, namely the “knowing and showing” approach.

Instead of blaming and punishing companies with bad publicity to stop their negative impacts on society, the knowing and showing approach provides a chance for companies to take preventive steps before any harm occurs from their operations. Companies are encouraged to conduct assessments to identify what harm they could cause to the environment, local communities and employees.

Likewise, companies are encouraged to communicate to the public all measures that they have taken to minimize the negative impacts arising from their operations. In this way, companies are able to tell the real situation to the public, yet maintain their reputations.

How does this knowing and showing approach work? The UN guidelines provide a practical instrument — human rights due diligence. It starts with a commitment by companies to respect human rights, followed by assessing what impact on human rights the company may cause, in what way, and to what level of severity.

The result of this assessment must be understood by all personnel at all levels within the companies, and their managements must take appropriate measures to address every single instance of identified harm, including cooperating with government and non-government bodies in relation to particular issues.

The measures taken must be evaluated in terms of whether or not they properly avoided or minimized the expected negative impacts. Finally, the company must prepare regular reports that contain all information about the above activities, which must be made publicly accessible.

Preparing human rights due diligence in the early phases of a project is the ideal situation. However, due diligence may be conducted at any stage of operations, regardless of the business sector and scale.

For instance, it is not too late for companies involved in the reclamation projects in Jakarta Bay to conduct human rights due diligence. Likewise, it would be beneficial for a company operating a goldmine project in Tumpang Pitu, Banyuwangi, East Java, to prepare due diligence, as the project only started a few weeks ago.

However, human rights due diligence is not aimed at justifying the continuance of a business project. It is a mechanism for the company to realize what harm it could cause, and a tool for all stakeholders to communicate and find a better solution to avoid human rights violations from occurring.

When the impact on human rights is too severe, there is no other option for the company except to halt the project — as we would all agree that human lives are worth more than anything else.

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The writer is a lecturer at the School of Law, Airlangga University, Surabaya.

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